Multipolar World Order in the Making

Qatar Dumps OPEC

by Federico Pieraccini

Strategic Culture Foundation (December 12 2018)

https://www.strategic-culture.org/images/news/2018/12/12/or-41898.jpg?55348
Photo: Flickr

The decision by Qatar to abandon OPEC threatens to redefine the global energy market, especially in light of Saudi Arabia’s growing difficulties and the growing influence of the Russian Federation in the OPEC+ mechanism.

In a surprising statement, Qatari energy minister Saad al-Kaabi warned OPEC on Monday December 3 that his country had sent all the necessary documentation to start the country’s withdrawal from the oil organization in January 2019. Al-Kaabi stressed that the decision had nothing to do with recent conflicts with Riyadh but was rather a strategic choice by Doha to focus on the production of LNG, which Qatar, together with the Russian Federation, is one of the largest global exporters of. Despite an annual oil extraction rate of only 1.8% of the total of OPEC countries (about 600,000 barrels a day), Qatar is one of the founding members of the organization and has always had a strong political influence on the governance of the organization. In a global context where international relations are entering a multipolar phase, things like cooperation and development become fundamental; so it should not surprise that Doha has decided to abandon OPEC. OPEC is one of the few unipolar organizations that no longer have a meaningful purpose in 2018, given the new realities governing international relations and the importance of the Russian Federation in the oil market.

Besides that, Saudi Arabia requires the organization to maintain a high level of oil production due to pressure coming from Washington to achieve a very low cost per barrel of oil. The US energy strategy targets Iranian and Russian revenue from oil exports, but it also aims to give the US a speedy economic boost. Trump often talks about the price of oil falling as his personal victory. The US imports about ten million barrels of oil a day, which is why Trump wrongly believes that a decrease in the cost per barrel could favor a boost to the US economy. The economic reality shows a strong correlation between the price of oil and the financial growth of a country, with low prices of crude oil often synonymous of a slowing down in the economy.

It must be remembered that to keep oil prices low, OPEC countries are required to maintain a high rate of production, doubling the damage to themselves. Firstly, they take less income than expected and, secondly, they deplete their oil reserves to favor the strategy imposed by Saudi Arabia on OPEC to please the White House. It is clearly a strategy that for a country like Qatar (and perhaps Venezuela and Iran in the near future) makes little sense, given the diplomatic and commercial rupture with Riyadh stemming from tensions between the Gulf countries.

In contrast, the OPEC+ organization, which also includes other countries like the Russian Federation, Mexico, and Kazakhstan, seems now to determine oil and its cost per barrel. At the moment, OPEC and Russia have agreed to cut production by 1.2 million barrels per day, contradicting Trump’s desire for high oil output.

With this last choice, Qatar sends a clear signal to the region and to traditional allies, moving to the side of OPEC+ and bringing its interests closer in line with those of the Russian Federation and its all-encompassing oil and gas strategy, two sectors in which Qatar and Russia dominate market share.

In addition, Russia and Qatar’s global strategy also brings together and includes partners like Turkey (a future energy hub connecting east and west as well as north and south) and Venezuela. In this sense, the meeting between Maduro and Erdogan seems to be a prelude to further reorganization of OPEC and its members.

The declining leadership role of Saudi Arabia in the oil and financial market goes hand in hand with the increase of power that countries like Qatar and Russia in the energy sectors are enjoying. The realignment of energy and finance signals the evident decline of the Israel-US-Saudi Arabia partnership. Not a day goes by without corruption scandals in Israel, accusations against the Saudis over Khashoggi or Yemen, and Trump’s unsuccessful strategies in the commercial, financial, or energy arenas. The path this doomed trio is taking will only procure less influence and power, isolating them more and more from their opponents and even historical allies.

Moscow, Beijing, and New Delhi, the Eurasian powerhouses, seem to have every intention, as seen at the trilateral summit in Buenos Aires, of developing the ideal multipolar frameworks to avoid continued US dominance of the oil market through shale revenues or submissive allies as Saudi Arabia, even though the latest spike in production is a clear signal from Riyadh to the USA. In this sense, Qatar’s decision to abandon OPEC and start a complex and historical discussion with Moscow on LNG in the format of an enlarged OPEC marks the definitive decline of Saudi Arabia as a global energy power, to be replaced by Moscow and Doha as the main players in the energy market.

Qatar’s decision is, officially speaking, unconnected to the feud triggered by Saudi Arabia against the small emirate. However, it is evident that a host of factors has led to this historic decision. The unsuccessful military campaign in Yemen has weakened Saudi Arabia on all fronts, especially militarily and economically. The self-inflicted fall in the price of oil is rapidly consuming Saudi currency reserves, now at a new low of less than 500 billion dollars. Events related to Mohammad bin Salman (MBS) have de-legitimized the role of Riyadh in the world as a reliable diplomatic interlocutor. The internal and external repression by the Kingdom has provoked NGOs and governments like Canada’s to issue public rebukes that have done little to help MBS’s precarious position.

In Syria, the victory of Damascus and her allies has consolidated the role of Moscow in the region, increased Iranian influence, and brought Turkey and Qatar to the multipolar side, with Tehran and Moscow now the main players in the Middle East. In terms of military dominance, there has been a clear regional shift from Washington to Moscow; and from an energy perspective, Doha and Moscow are turning out to be the winners, with Riyadh once again on the losing side.

As long as the Saudi royal family continues to please Donald Trump, who is prone to catering to Israeli interests in the region, the situation of the Kingdom will only get worse. The latest agreement on oil production between Moscow and Riyad signals that someone in the Saudi royal family has probably figured this out.

Countries like Turkey, India, China, Russia, and Iran understand the advantages of belonging to a multipolar world, thereby providing a collective geopolitical ballast that is mutually beneficial. The energy alignment between Qatar and the Russian Federation seems to support this general direction, a sort of G2 of LNG gas that will only strengthen the position of Moscow on the global chessboard while guaranteeing a formidable military umbrella for Doha in case of a further worsening of relations between Saudi Arabia and Qatar.

(c) 2010 – 2018 | Strategic Culture Foundation | Republishing is welcomed with reference to Strategic Culture on-line journal http://www.strategic-culture.org.

The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation.

https://www.strategic-culture.org/news/2018/12/12/multipolar-world-order-in-making-qatar-dumps-opec.html

Advertisements

Saving the Environment

Is Degrowthing the Answer?

by Dean Baker

https://www.counterpunch.org (November 28 2018)


Photo Source: Anahi Patricia Jasso Aleman | CC BY 2.0

A friend recently sent me a piece {1} by Jason Hickel, arguing that growth can’t be green and that we need to move away from growth oriented economics. I am not convinced. It strikes me both that the piece misrepresents what growth means and also confuses political obstacles with logical ones. The result is an attack on a concept that makes neither logical nor political sense.

In the piece, Hickel points out the enormous leaps that will be required to keep our greenhouse gas emissions at levels that will prevent irreversible environmental damage. He then hands us the possibility, that even if through some miracle we can manage to meet these targets with the rapid deployment of clean energy, we still have the problem of use of other resources that is wiping species and wrecking the environment.

Hickel’s points about the imminent dangers to the environment are very much on the mark, but it is not clear that has anything to do with the logic of growth. Suppose the Sustainable World Party (SWP) sweeps to power in the next election. They immediately impose a massive tax on greenhouse gas emissions, which will rise even further over time. They also inventory all the resources that are in limited supply and impose large and rising taxes on them.

Furthermore, they pay developing countries large sums to protect regions that are important for sustaining species facing extinction and for the global environment. The new administration also hugely increases spending on research on clean technologies and has massive subsidies for zero-emission vehicles and even more importantly for mass transit. As the SWP implements this policy, it has very stimulative fiscal and monetary policies.

Will the economy continue to grow through this transition? That’s hard to say. If the price of gas quadrupled people would obviously drive less and buy fewer cars. On the other hand, since the government is throwing money at them with its fiscal and monetary policy, they may choose to spend more money on things that are not inherently resource-using. They may spend more money on education, seeing movies and plays, gym memberships, eating at restaurants, better software for their computer and other types of spending that don’t either directly involve the use of resources or at least not obviously more than the alternative. (Eating at a restaurant obviously involves consuming food, but it doesn’t necessarily mean consuming more food than eating at home.)

But whatever happens in the transition period, what would keep the economy from growing in subsequent years? We have locked down all the resources in short supply and preserved large chunks of the world from encroachments by roads and settlements, but it is hard to see why we would not be developing better health care technology, better software, more types of cultural output, better housing (in the sense of being more pleasant – not necessarily larger), and other improvements in living standards, all of which count as growth in GDP {2}. Where is the war with growth?

Or to flip it over, let’s put Hickel and the anti-growthers in charge. (I confess, I have just read two essays by him, so I may be misrepresenting his views). He explicitly doesn’t want us to have growth, but in the Hickel world will we stop people from developing better software, improved medical treatments, improved educational techniques, and other advances that mean growth? I assume that won’t be the case, but then how is Hickel’s world different than the world that any pro-growther who takes the environment seriously would want?

There is a tendency by some anti-growthers to insist that growth means greater resource use. It doesn’t. If the argument is that we can’t continually expand our use of resources on a finite planet, that’s fine and obviously true. But why can’t our software, our entertainment, our education, and our healthcare get ever better? If there is a limit in these areas, it is very hard to see what it is.

The Politics of Growth and Anti-Growth

The challenge posed in Hickel’s essay is for pro-growthers to come up with a plan that both saves the world from a disastrous rise in temperature and also to prevent the further destruction of species and habitats through the excessive use of land and other resources. Actually, it is not hard to design a set of policies in terms of taxes, subsidies, and outright restrictions that could meet this challenge and still allow growth. The problem would be getting political support for this agenda.

Any pro-growther can write down on paper a $300 a ton tax on carbon emissions, large taxes on the use of water and other resources, and huge subsidies for clean energy, public transit, energy efficient housing, and other types of conservation. The problem is getting political support for this agenda. If Hickel’s challenge to the pro-growthers is whether we can get this environmentally friendly agenda adopted politically in a time frame where we can save the planet, he has raised a very important question without a good answer.

But let’s say we adopt the anti-growth agenda. We tell people we are now against growth. Presumably to save the planet in our new anti-growth framework we push many of the same policies. Perhaps the policies will be stronger in the form of even of even higher taxes or outright prohibitions on the use of some resources. Does anyone believe that this agenda has a better chance of being adopted because we told people that we are opposed to growth? It is very difficult to see how our stated opposition to growth makes one iota of difference in terms of selling environmentally sustainable policies, except leading people to think we are weird because we’re telling them that something they always thought was good is in fact bad.

If the point is that people engage in all sorts of environmentally wasteful consumption that does not actually make them happy, it would be hard to argue with the anti-growthers. But there do not seem to be many people anxious to get sermons on their bad consumption habits and prepared to change their ways. Unfortunately, shifting people to more sustainable consumption patterns is going to be a very difficult process and that happens to be true even if the future of the planet necessitates this shift.

At the risk of caricaturing the argument, it seems as though the anti-growthers believe that we adopt policies because of the worship of growth, as opposed to the specific benefits being offered. This strikes me as completely off the mark.

When Exxon-Mobil and other major fossil fuel companies oppose measures to restrict greenhouse gas emissions, they couldn’t care less whether these policies would raise or lower GDP growth. They are concerned about their profits, end of story. The same is true of all the other companies that engage in practices that are harmful to the environment.

As for the politicians who support these companies, the odds are that the vast majority have never given a moment’s thought to the meaning of these policies. They know what these companies want them to say and do, and the campaign contributions follow. The claims about growth are just window dressing. They have to pretend to have the larger interest of the public at heart since it would be pretty hard for Exxon-Mobil to tell people that a carbon tax was bad simply because it would hurt its profits.

Okay, but what about the general public. Does Exxon-Mobil’s argument have salience only because they worship growth? I would argue that “growth” per se means very little to most people. If the GDP grew by one percentage point more or less last year, most people would have no idea. For the vast majority of the population “growth” means whether they have a secure job that provides them with decent pay and benefits like health care insurance.

It is possible to maintain high levels of employment even as we use taxes and subsidies to move people away from the most environmentally damaging forms of consumption. It is worth noting that, even taken at face value, the economic models that show job loss from restrictions on greenhouse gas emissions are not actually describing a world where people cannot find jobs. These models are actually describing a world in which more people chose not to work because the higher price of energy means a higher cost of living and therefore a lower real wage. In these models, at a lower real wage fewer people choose to work.

While these models may not be a perfect description of reality, it is undoubtedly the case that many workers would be quite upset if the price of gas doubled or tripled. And, this would be true even if we made heroic efforts to increase the availability of public transit.

The issue is how to change people’s perceptions of what is important in life. I don’t see simple answers here, but there are some things we do know. In Western Europe, people consume on average roughly half as much fossil fuel per person as we do in the United States. I suspect that their per person use of most other resources is also roughly half as large as it is for the United States.

Part of the story is that European countries have chosen to take more of the gains of productivity in leisure than income. On average, workers in Northern Europe work roughly twenty percent fewer hours a year than workers in the United States. They are also likely to retire earlier. As a result, their incomes average twenty to thirty percent less than in the United States.

European countries also have much more public consumption than in the United States, in the form of health care insurance, education through college, and public pensions. As a result, tax burdens are considerably higher in European countries than the United States.

It may be the case that European consumption patterns are still too resource-using to be sustainable, but these countries have shown a greater willingness to endure higher taxes and other costs associated with reducing energy consumption further. This doesn’t mean that there is not substantial opposition {3} to such measures, but they clearly face better political prospects than in the United States.

The Path to Green Policies

The idea that we will have some moment of Great Awakening, where the world, or at least the US public, recognizes the need to substantially reduce greenhouse gas emissions seems implausible. We will have to plod through with the hope that the plodding will be fast enough to prevent too much undoable destruction.

A good roadmap for this plodding would be to follow Europe. The most politically viable part of a follow Europe strategy is pushing for shorter work years. There is considerable support in the United States for mandated time off in the form of paid sick days and paid family leave. Such measures have won support in states and cities across the country. It is reasonable to think that mandated vacation days would also be salable.

We can also support work-sharing measures as an alternative form of unemployment insurance. This is good macroeconomic policy (it’s better to keep people employed even at shorter hours than to have them be unemployed), but it also holds out the possibility that if people come to work shorter workweeks for a period of time, they may like it and try to continue with short workweeks. In any case, this one should not be a big lift politically, even Republicans have supported work sharing.

The collective consumption story also has some hope here. There is considerable support for expanding the role of the federal government in ensuring access to health care. The same is true of public support for college and higher education more generally, also childcare. These will not be easy political lifts, but they are also not far-fetched possibilities at this point.

The other part of the story is reversing the upward redistribution of income of the last four decades. There are two issues here. First, people are inclined to try to emulate the consumption patterns of those higher up on the income ladder. When the very rich have wasteful lifestyles, this percolates down to the middle class. They also want to have large houses, powerful cars, et cetera.

Jeff Bezos has perhaps given us the most extreme example of this story. Being on occasion the richest person in the world, depending on the price of Amazon stock, Bezos has said that he can’t think of anything better to do with his money than to send stuff into space. If recreational space travel becomes a common form of consumption, not only for the very rich, but the aspiring upper middle class, then we will have taken a huge step backward in the effort to save the planet.

The other part of the story is that people are willing to make sacrifices when they perceive them as being shared. One reason for the anger of the French towards the recent rise in gas taxes imposed by President Macron is the perception that Macron is working for the rich. He has cut the top tax rate and the rich in France seem to be doing very well. Policies aimed at reversing the upward redistribution of income of the last four decades, as I lay out in Rigged (2016), could go far towards getting people to accept lifestyles that are less taxing on the environment.

Conclusion: Fighting Growth Is Not a Real Battle, Trying to Save the Environment Is

At the end of the day, it is difficult to see how we help the environment by attacking growth. We need measures that sharply reduce environmental damage. Telling people that we are against growth is not likely to make it easier to adopt environmentally friendly policies. Given the rate of destruction we are seeing, our best efforts may well not be enough, but that doesn’t mean attacking growth will get us there either.

I have an old friend who got married in Los Vegas by an Elvis Presley impersonator. When people asked him why, he explained that he got married once before by someone who wasn’t an Elvis impersonator and it didn’t work out.

Of course, this made zero sense (my friend was kidding), but this does seem like Hickel’s anti-growth logic. We may not be able to prevent the destruction of the planet on our current course, but telling people we are against growth does not help matters in any obvious way. For what it’s worth, my friend’s second marriage also ended in divorce.

Notes:

{1} https://foreignpolicy.com/2018/09/12/why-growth-cant-be-green/

{2} To be entirely accurate, many of these items are poorly measured in GDP, so they may not be picked up. For example, we pick up treatments for AIDS as a service in GDP. If we can effectively stop the spread of AIDs, so people don’t need treatment, the benefits will not be picked up in GDP as now measured. Similarly, the massive improvements in health resulting from the reduction in smoking over the last four decades are not picked up in GDP.

{3} https://edition.cnn.com/2018/11/17/europe/macron-france-fuel-protests-intl/index.html
_____

This essay originally appeared at http://cepr.net/.

https://www.counterpunch.org/2018/11/28/saving-the-environment-is-degrowthing-the-answer/

Why “Green Growth” Is an Illusion

by Enno Schroder and Servaas Storm

Institute for New Economic Thinking (December 05 2018)

Zero Hedge (December 05 2018)

Sounding the Alarm on Global Warming

If the Paris climate agreement of December 2015 – the so-called COP21 – provided cause for optimism that, after years of fruitless diplomatic squabbling, coordinated global action to avoid dangerous climate change and ensure manageable warming of less than two degrees Celsius, would finally happen, recent publications by climate scientists are loudly sounding the alarm bells. Specifically, Earth systems scientists (Steffen et al 2018) and the Intergovernmental Panel on Climate Change (IPCC 2018) warn that even if global emissions are drastically reduced in line with the 66% below two degrees Celsius goal of COP21, a series of self-reinforcing bio-geophysical feedbacks and tipping cascades – from melting sea ice to deforestation – could still lock the planet into a cycle of continued warming and a pathway to final destination: “Hothouse Earth”.

Allowing warming to reach two degrees Celsius would create risks that any reasonable person – if not, perhaps, Donald Trump – would regard as deeply dangerous. To avoid those risks and keep warming below 1.5 degree Celsius, humanity will have to reduce emissions of greenhouse gases (GHGs) to net zero by 2050. The early optimism about the Paris agreement is giving way to widespread pessimism that COP21 will not be working soon enough. Climate scientists and Earth systems scientists attempt to counter the growing pessimism by showing that limiting the global mean temperature increase to 1.5 degrees Celsius is neither a geophysical impossibility nor a technical fantasy. The engineering solutions to bring about deep de-carbonization – including quick fixes and negative-emissions technologies – are available and are beginning to work.

The real problem is that available solutions go against the economic logic and the corresponding value system that have dominated the world economy for the last half decade – a logic aimed at scaling back (environmental) regulations, pampering the oligopolies of big fossil-fuel corporations, powering companies, and the automotive industry, giving free rein to financial markets and prioritizing short-run shareholder returns (Speth 2008; Klein 2014; Storm 2017). Hence, as Steffen et al (2018) write, the biggest barrier to averting going down the path to “Hothouse Earth” is the present dominant socioeconomic system, based as it is on high-carbon economic growth and exploitative resource use. We will only be able to phase out greenhouse gas emissions before mid-century if we shift our societies and economies to a “wartime footing”, suggests Will Steffen, one of the authors of the “Hothouse Earth” paper in an interview with Kate Aronoff (Aronoff 2018).

… But Don’t Panic. Don’t Panic!

The alarmist tone of the “Hothouse Earth” analyses stands in contrast to more upbeat reports that there has been a delinking between economic growth and carbon emissions in recent times, at least in the world’s richest countries. The view that decoupling is already happening in real time is a popular position in global and national policy discourses on COP21. To illustrate, in a widely read 2017 Science article titled “The Irreversible Momentum of Clean Energy”, former US President Barack Obama, argues that the US economy could continue growing without increasing CO2 emissions thanks to the rollout of renewable energy technologies. Drawing on evidence from the report of his Council of Economic Advisers (2017), Obama claims that during the course of his presidency the American economy grew by more than ten percent despite a 9.5% fall in CO2 emissions from the energy sector. “This ‘decoupling’ of energy sector emissions and economic growth”, writes Obama, “should put to rest the argument that combating climate change requires accepting lower growth or a lower standard of living”. Obama is not the only optimist in town; others have highlighted similar trends:

* The International Energy Agency (IEA) argues that global carbon emissions have decoupled from economic growth from 2014~2016 (IEA 2016); the IEA 66% below two degrees Celsius pathways are based on steady-state rates of potential output growth from 2014~2050 of two percent for the US, one percent for the EU, and 0.5% for Japan (OECD 2017, p. 171);

* The World Resources Institute reports that as many as 21 countries (mostly belonging to the OECD) managed to reduce their (territory-based) carbon emissions while growing their GDP in the period 2000 to 2014 (Aden 2016);

* The Global Commission on the Economy and Climate (2018) speaks about a “new era of economic growth” that is sustainable, zero-carbon, and inclusive – and driven by rapid technological progress, sustainable infrastructure investment, drastically increased energy efficiency, and radically reduced carbon intensity;

* International Monetary Fund economists Cohen, Tovar Jalles, Loungani, and Marto (2018) find some evidence of decoupling for the period 1990~2014, particularly in European countries and especially when emissions measures are production-based; and finally

* The OECD argues, in its 2017 report “Investing in Climate, Investing in Growth”, that the G20 countries can achieve “strong” and “inclusive” economic growth at the same time they reorient their economies toward development pathways featuring substantially lower GHG emissions.

In our new INET Working Paper, we attempt to go beyond the “Yes, We Can” optimism concerning decoupling, offering what we hope is a more realistic evaluation of the nexus between economic growth and carbon emissions. We do this in two ways. We first assess the viability of a long-run decoupling of global economic growth and carbon emissions using the easily-understood Kaya identity [i]. We then present a systematic econometric analysis of the (historical) relationship between economic growth and carbon dioxide emissions, using the Carbon-Kuznets-Curve (CKC) framework. We run panel data regressions using OECD Inter-Country Input-Output (ICIO) CO2 emissions data for 61 countries during 1995~2011, and to check the robustness of our findings, we construct and use three other panel samples sourced from alternative databases (Eora; Exio; and WIOD).

Can the Global Economy Grow as Global Carbon Emissions Fall?

We first assess the scope for (global) growth from 2014~2050, which is consistent with carbon emission reductions of the 66% below two degrees Celsius scenario of COP2. Using the Kaya identity, the growth of global carbon emissions can be decomposed into global population growth, per capita income growth, the growth of carbon intensity of energy supply, and the growth of energy intensity of GDP. Table 1 presents the results of a decomposition of global CO2 emissions for the period 1971-2015 and our projection for the period 2014~2050. Note that we focus on CO2 emissions from the energy system, which represent seventy percent of global GHG emissions in 2010. As Table 1 shows, historically, global CO2 emissions increased by 1.93% per year during 1971~2015. Growth in population (at 1.53% per year) and in per capita real GDP (at 1.91% per year) exerted upward pressure on CO2 emissions, which was only partially offset by downward pressure from higher energy efficiency (energy intensity declined by 1.35% per annum) and lower carbon intensity (which declined by 0.15% per year). These downward trends in energy and carbon intensity are insufficient to delink economic growth and carbon emissions – and they are nowhere close to what is needed to achieve the longer-term Paris pledges or the recommendation of IPCC (2018).

Table 1: A Kaya Identity Decomposition of Global CO2 Emissions, 1971~2015 and 2014~2050 (Average Annual Growth Rates %)

Table 1: A Kaya Identity Decomposition of Global CO2 Emissions, 1971-2015 and 2014-2050 (Average Annual Growth Rates %)

Actual Changes Prognosis: 85% reduction in CO2 emissions
1971-1990 1991-2015 1971-2015 2014-2050
global CO2 emissions    2.05    1.89    1.93 ─5.13
world population    1.80    1.31    1.53   0.79
real GDP per capita    1.75    2.14    1.91   0.45
energy intensity (TPES/GDP) ─1.08 ─1.59 ─1.35 ─2.69
carbon intensity (CO2/TPES) ─0.40    0.06 ─0.15 ─3.68

Sources: See Schroder and Storm (2018). Notes: Average annual growth rate is compound average annual growth rates. Calculations are based on the IEA (2017) and IEA 66% two degrees Celsius scenario projections. The projected changes for the period 2014~2050 are consistent with the IEA 66% two degrees Celsius scenario projections. For derivation, see Schroder and Storm (2018)

Table 1 also presents our growth prognosis for the period 2014~2050. We assume that global CO2 emissions in 2050 have to be reduced by 85% relative to their 1990 level, or by 5.13% per year. World population growth equals 0.79% per year, based on United Nations projections. The very ambitious (that is, historically unprecedented) projected decreases in energy and carbon intensity are taken from OECD (2017, Table 2.18); these projections are in line with IEA-OECD 66% below two degrees Celsius scenarios. Based on these optimistic assumptions, we find that climate-constrained growth of global per capita income cannot exceed a measly 0.45% per year during the next three decades. Hence, if we want to stabilize the climate, future global economic growth must be well below the historical annual income growth rate (of 1.93%) during 1971~2015 – and this holds true under the optimistic assumption that we manage to bring about historically unprecedented reductions in carbon intensity and energy intensity.

The prognosis strongly suggests that we have reached a fork in the road. We could continue to grow our economies the way we did in the past, but this means we have to prepare for global warming of three to four degrees Celsius by 2100 and run a big risk of having to adapt to “Hothouse Earth”. Adaptation would mean that we have to come to terms with the impossibility of material, social and political progress as a universal promise: Life is going to be worse for most people in the 21st century in all these dimensions. The political consequences of this are hard to predict.

But there is an alternative: We do whatever it takes to force through the technological, structural, and societal changes needed to reduce carbon emissions so as to stabilize warming at 1.5 degrees Celsius (Grubb 2014; Steffen et al, 2018) and just accept whatever consequences this has in terms of economic growth (Ward et al, 2016). Whichever way, the bottom line is that the climate constraint appears to be binding. Or are we missing something: Is there a small group of (advanced) countries that have crossed the turning point of the CKC?

Can we put to rest the argument that halting warming requires accepting lower growth, as Obama argues we can? We systematically investigate Obama’s hypothesis that a small group of (advanced) countries has crossed the turning point of the CKC (Schroder and Storm 2018). The CKC hypothesis holds that CO2 emissions per person do initially increase with rising per capita income (due to industrialization), then peak and decline after a threshold level of per capita GDP, as countries arguably become more energy efficient, more technologically sophisticated, and more inclined to and are able to reduce emissions by corresponding legislation. We run panel data regressions using OECD Inter-Country Input-Output (ICIO) CO2 emissions data for 61 countries for the period from 1995 to 2011. To check the robustness of our findings, we construct and use three other panel samples sourced from alternative databases (Eora; Exio; and WIOD). We present a variety of models and pay particular attention to the difference between production-based (territorial) emissions and consumption-based emissions, which include the impact of international trade (Schroder and Storm 2018).

Figure 1 summarizes the result of our baseline regressions which provide evidence for the existence of a CKC for production-based CO2 emissions with a turning point at 56 thousand dollars per capita. If China developed along the path of our production-based CKC, it would exhaust half the global carbon budget before even reaching the turning point. Accordingly, global economic development along the production-based CKC is not compatible with the IPCC (2018) pathway consistent with keeping global warming below 1.5 degrees Celsius.

The turning point for consumption-based CO2 emissions is at 93 thousand dollars – outside the sample range. Hence, we conclude that while there is some evidence of decoupling between economic growth and production-based (territorial) emissions, there is no evidence of decoupling for consumption-based emissions. Some OECD countries have managed to some extent to delink their production systems from CO2 emissions by relocating and outsourcing carbon-intensive production activities to the low-income countries. The generally used production-based GHG emissions data ignore the highly fragmented nature of global production chains (and networks) and are unable to reveal the ultimate driver of increasing CO2 emissions: consumption growth. Obama is wrong, therefore: there is no evidence of carbon decoupling – and mind you, it is no great achievement to reduce domestic per capita carbon emissions by outsourcing carbon-intensive activities to other countries and by being a net importer of GHG, while raising consumption and living standards.


Figure 1: The Carbon-Kuznets Curve, 1995~2011 (61 countries) Note: Based on estimations by the authors. See Schroder and Storm (2018) for estimation results and checks.

A Realist’s Assesment

Our statistical analysis shows that, to avoid a climate catastrophe, the future must be radically different from the past. Climate stabilization requires a fundamental disruption of hydrocarbon energy, production, and transportation infrastructures, a massive upsetting of vested interests in fossil-fuel energy and industry, and large-scale public investment – and all this should be done sooner than later. Steffen’s analogy of massive mobilization in the face of an existential threat is fundamentally correct. The problem for most economists is that it suggests directional thrust by state actors, smacks of planning, coordination, and public interventionism, and goes against the market-oriented belief system of most economists. “Economists like to set corrective prices and then be done with it”, writes Jeffrey Sachs (2008), adding that “this hands-off approach will not work in the case of a major overhaul of energy technology”. We thus have to discard the prevalent market-oriented belief system, in which government intervention and non-market modes of coordination and decision-making are inferior to the market mechanism and will mostly fail to achieve what they intend to bring about. Without a concerted (global) policy shift to deep de-carbonization (Sachs 2016; Fankhauser and Jotzo 2017), a rapid transition to renewable energy sources (Peters et al 2017), structural change in production, consumption and transportation (Steffen et al 2018), and a transformation of finance (Mazzucato and Semieniuk 2018), the decoupling will not even come close to what is needed (e.g. Storm 2017).

Political support for such a strategy of deep de-carbonization is not in the cards – not just in the US, but also in Brazil, Australia, and elsewhere. Ostensibly more progressive “green growth” approaches, unfortunately, remain squarely within the realm of business-as-usual economics as well, proposing solutions which rely on technological fixes on the supply side and voluntary or “nudged” behavior change on the demand side, and which are bound to extend current unsustainable production, consumption, and emission patterns into the future. The belief that any of this half-hearted tinkering will lead to drastic cuts in CO2 emissions in the future is plain self-deceit; and we know, with Ludwig von Wittgenstein, that nothing is so difficult as not deceiving oneself. Hence, if past performance is relevant for future outcomes, our results should put to bed the complacency concerning the possibility of “green growth”. There is no decoupling of growth and consumption-based CO2 emissions – “green growth” is a chimera.

_____

Enno Schroder, Economist and Servaas Storm, Senior Lecturer of Economics, Delft University of Technology.

See original post for references: https://www.ineteconomics.org/perspectives/blog/why-green-growth-is-an-illusion

https://www.nakedcapitalism.com/2018/12/green-growth-illusion.html

Smartphone Wars

Yandex & Huawei Challenge Western Monopolies

by Caleb Maupin

New Eastern Outlook (December 12 2018)

The arrest of Chinese telecommunications Chief Financial Officer (CFO) Meng Wanzhou has sent shockwaves through the global markets. The context of the smartphone industry and the challenges facing big monopolies from Russia and China is vital background information for anyone who wants to understand these recent, dramatic events.

One of the favorite talking points of defenders of free markets is “capitalism made your iPhone”. According to the meme, those who believe in socialism or Marxism are presented as total hypocrites if they own smartphone as only the profit system’s rewarding of entrepreneurship could ever produce such a technological creation.

However, a little investigation reveals that the entire premise of the meme is false. The first cell phone was created by Leonid Ivanovich Kupriyanovich, a Moscow-based engineer in 1955 who conducted his research in state-run facilities. Furthermore, the screens of most smartphones are illuminated by Light Emitting Diodes (LED), the first of which was invented in 1927 by Oleg Vladimirovich Losev. Losev was also a Russian who conducted his research in state-sponsored facilities.

The computer revolution itself can largely be attributed to the work of Alan Turing and his decoding machine created during the Second World War. This research was done in the context of heavy military control over industry when Britain was aligned with the Soviet Union against Nazi Germany, hardly a free market situation.

Cell-phones are simply not the product of some objectivist fantasy about a misunderstood “great man” tinkering in his garage unabated and untaxed. Cell phones, LED lights, and the Computer Revolution itself came about as a result of central planning, and the overall mobilization of society by the state to reach technological and production goals.

Today, the largest cell phone manufacturer on earth is Huawei Technologies based in the Chinese tech hub of Shenzhen. This huge manufacturer of smartphones that are purchased and celebrated all over the world, is closely tied to the Chinese government and military.

The CFO of Huawei was recently arrested in Canada at the request of US officials. Meng now faces extradition to the United States. Charges have not formally been named, but it is widely speculated that it is related to accusations that Huawei has violated US sanctions against the Islamic Republic of Iran.

Independent Telecom on the Rise

It is perhaps a strange coincidence that just as Huawei’s CFO has been arrested, Yandex, the Russian internet corporation has announced that it is producing a smartphone of its own. On December 5th, the world became aware that soon a “Yandex Phone” produced by the government subsidized tech entity will be available for purchase. Yandex has also recently gotten in on the ride-hailing and other high tech endeavors.

Even the deeply impoverished nation of Angola, led by the Socialist MPLA, was able to create its own independent cell phone company. Isabel Dos Santos utilized revenue from the state-controlled oil corporation, and assistance from the People’s Republic of China, to create and expand a corporation called Unitel. Santos push for the creation of other independent telecommunications apparatus in southern Africa and in Portuguese speaking countries.

Prior to the arrest of Meng Wanzhou, the US FBI urged Americans not to buy Chinese smartphones. The reason given was the corporation’s ties to the Chinese government, and fears that information could be compromised.

However, it is widely known thanks to the revelations of Edward Snowden, that the National Security Agency of the United States has a close relationship with many American cellular and tech companies. Google, Facebook, Apple, and other high tech companies have routinely cooperated with federal officials, and the individuals whose information is being subpoenaed or requested from the tech giants are often never informed that their privacy has been violated.

In the context of a rising challenge to the western smartphone monopolies by independent manufacturers around the world, one must find it suspicious that federal officials in the USA have suddenly become concerned about the privacy of American citizens, and alleged sanctions violations by China’s telecommunications giant.

One must wonder if, underneath the hysteria, there is a desperate attempt to preserve a western semi-monopoly that is quickly slipping away.

_____

Caleb Maupin is a political analyst and activist based in New York. He studied political science at Baldwin-Wallace College and was inspired and involved in the Occupy Wall Street movement, especially for the online magazine New Eastern Outlook.

https://journal-neo.org/2018/12/12/smartphone-wars-yandex-huawei-challenge-western-monopolies/

$21 Trillion of Unauthorized Spending …

… by US Government Discovered by Economics Professor

https://www.rt.com (December 16 2017)


(c) Lee Jae Won (c) Reuters

The US government may have misspent $21 trillion, a professor at Michigan State University (MSU) has found. Papers supporting the study briefly went missing just as an audit was announced.

Two departments of the US federal government may have spent as much as $21 trillion on things they can’t account for between 1998 and 2015. At least that’s what Mark Skidmore, a Professor of Economics at MSU specializing in public finance, and his team have found.

They came up with the figure after digging the websites of departments of Defense (DoD) and Housing and Urban Development (HUD) as well as reports of the Office of the Inspector General (OIG) over summer.

The research was triggered by Skidmore hearing Catherine Austin Fitts, a former Assistant Secretary in the HUD in the first Bush administration, saying the Inspector General found $6.5 trillion worth of military spending that the DoD couldn’t account for. She was referring to a July 2016 report by the OIG, but Skidmore thought she must be mistaking billion for trillion. Based on his previous experience with public finances, he thought the figure was too big even for an organization as large as the US military.

“Sometimes you have an adjustment just because you don’t have adequate transactions … so an auditor would just recede. Usually, it’s just a small portion of authorized spending, maybe one percent at most. So for the Army, one percent would be $1.2 billion of transactions that you just can’t account for”, he explained in an interview with USAWatchdog.com earlier this month.

After discovering that the figure was accurate, he and Fitts collaborated with a pair of graduate students to comb through thousands of reports of the OIG dating back to 1998, when new rules of public accountability for the federal government were set and all the way to 2015, the time of the latest reports available at the time. The research was only for the DoD and the HUD.

“This is incomplete, but we have found $21 trillion in adjustments over that period. The biggest chunk is for the Army. We were able to find thirteen of the seventeen years and we found about $11.5 trillion just for the Army”, Skidmore said.

The professor would not suggest whether the missing trillions went to some legitimate undisclosed projects, wasted or misappropriated, but believes his find indicates that there is something profoundly wrong with the budgeting process in the US federal government. Such lack of transparency goes against the due process of authorizing federal spending through the US Congress, he said.

Skidmore also co-authored a column on Forbes, explaining his research.

The same week the interview took place the DoD announced that it will conduct its first-ever audit. “It is important that the Congress and the American people have confidence in DoD’s management of every taxpayer dollar”, Comptroller David Norquist told reporters as he explained that the OIG has hired independent auditors to dig through the military finances.

“While we can’t know for sure what role our efforts to compile original government documents and share them with the public has played, we believe it may have made a difference”, Skidmore commented.

Interestingly, in early December the authors of the research discovered that the links to key document they used, including the 2016 report, had been disabled. Days later the documents were reposted under different addresses, they say.

https://www.rt.com/usa/413411-trillions-dollars-missing-research/

Pentagon Fails First Audit

Neocons Demand More Spending!

by Ron Paul

http://www.unz.com (November 19 2018)

The Pentagon has finally completed its first ever audit and the results are as many of us expected. After spending nearly a billion dollars to find out what has happened to trillions in unaccounted-for spending, the long look through the books has concluded that only ten percent of all Pentagon agencies pass muster. I am surprised any of them did.

Even the Pentagon is not surprised by the failure of the audit. “We failed the audit. But we never expected to pass it”, said Deputy Secretary of Defense Patrick Shanahan. Can we imagine any large US company subject to the prying eyes of the IRS being so unfazed by the discovery that its books have been so mishandled?

As with all government programs, but especially when it comes to military spending, the failure of a program never leads to calls for funding reductions. The Pentagon’s failure to properly account for the trillions of taxpayer dollars shoveled in year after year only means, they say, that we need to send more money! Already they are claiming that with more resources – meaning money – they can fix some of the problems identified by the audit.

If you subsidize something you get much more of it and, in this case, we are subsidizing Pentagon incompetence. Expect much more of it.

Outgoing chairman of the House Armed Services Committee, Representative Mac Thornberry, warned against concluding that this mishandling trillions of dollars should make us hesitant to continue sending trillions more to the Pentagon. The failed audit “should not be used as an excuse for arbitrary cuts that reverse the progress we have begun on rebuilding our strength and readiness”, he said.

The neocons concur. Writing in the Free Beacon, editor Matthew Continetti (who happens to be Bill Kristol’s son-in-law) warns that now is “the wrong time to cut defense”.

But I agree with the young neoconservative Continetti. I would never support cutting a penny of defense. However, the Pentagon’s lost trillions have nothing to do with defense. That is money propping up the high lifestyles of those connected to the military-industrial complex.

Continetti and the neocons love to throw out bogeymen like China and Russia as excuses for more military spending, but in fact, they are hardly objective observers. Look at how much the military contractors spend funding the neocon publications and neocon think tanks telling us that we need more military spending! All this money is stolen from the productive economy and diverted to enrich neocon cheerleaders at our expense.

Of course, the real problem with the Pentagon and military spending, in general, is not waste, fraud, and abuse. It is not ten thousand dollar toilet seats or coffee mugs. The problem with military spending is the philosophy that drives it. If the US strategy is to maintain a global military empire, there will never be enough spending. Because there is never enough to control every corner of the globe. But if we are to return to a well-defended republic, military spending could easily be reduced by 75 percent while keeping us completely safe. The choice is ours!

(Republished from The Ron Paul Institute by permission of author or representative)

http://www.unz.com/rpaul/pentagon-fails-first-audit-neocons-demand-more-spending/

Exclusive: The Pentagon’s Massive Accounting Fraud Exposed

How US Military Spending Keeps Rising even as the Pentagon Flunks its Audit.

by Dave Lindorff

https://www.thenation.com (November 27 2018)

An aerial view of the Pentagon building in Washington. (Reuters / Jason Reed)

On November 15, Ernst & Young and other private firms that were hired to audit the Pentagon announced that they could not complete the job. Congress had ordered an independent audit of the Department of Defense, the government’s largest discretionary cost center – the Pentagon receives 54 cents out of every dollar in federal appropriations – after the Pentagon failed for decades to audit itself. The firms concluded, however, that the DoD’s financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible.

Deputy Secretary of Defense Patrick Shanahan tried to put the best face on things, telling reporters, “We failed the audit, but we never expected to pass it”. Shanahan suggested that the DoD should get credit for attempting an audit, saying, “It was an audit on a $2.7 trillion organization, so the fact that we did the audit is substantial”. The truth, though, is that the DoD was dragged kicking and screaming to this audit by bipartisan frustration in Congress, and the result, had this been a major corporation, likely would have been a crashed stock.

As Republican Senator Charles Grassley of Iowa, a frequent critic of the DoD’s financial practices, said on the Senate floor in September 2017, the Pentagon’s long-standing failure to conduct a proper audit reflects “twenty-six years of hard-core foot-dragging” on the part of the DoD, where “internal resistance to auditing the books runs deep”. In 1990, Congress passed the Chief Financial Officers Act, which required all departments and agencies of the federal government to develop auditable accounting systems and submit to annual audits. Since then, every department and agency has come into compliance – except the Pentagon.

Now, a Nation investigation has uncovered an explanation for the Pentagon’s foot-dragging: For decades, the DoD’s leaders and accountants have been perpetrating a gigantic, unconstitutional accounting fraud, deliberately cooking the books to mislead the Congress and drive the DoD’s budgets ever higher, regardless of military necessity. DoD has literally been making up numbers in its annual financial reports to Congress – representing trillions of dollars’ worth of seemingly nonexistent transactions – knowing that Congress would rely on those misleading reports when deciding how much money to give the DoD the following year, according to government records and interviews with current and former DoD officials, congressional sources, and independent experts.

“If the DOD were being honest, they would go to Congress and say, ‘All these proposed budgets we’ve been presenting to you are a bunch of garbage’ “, said Jack Armstrong, who spent more than five years in the Defense Department’s Office of Inspector General as a supervisory director of audits before retiring in 2011.

The fraud works like this. When the DoD submits its annual budget requests to Congress, it sends along the prior year’s financial reports, which contain fabricated numbers. The fabricated numbers disguise the fact that the DoD does not always spend all of the money Congress allocates in a given year. However, instead of returning such unspent funds to the US Treasury, as the law requires, the Pentagon sometimes launders and shifts such monies to other parts of the DoD’s budget.

Veteran Pentagon staffers say that this practice violates Article I Section 9 of the US Constitution, which stipulates that

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Among the laundering tactics the Pentagon uses so-called “one-year money” – funds that Congress intends to be spent in a single fiscal year get shifted into a pool of five-year money. This maneuver exploits the fact that federal law does not require the return of unspent “five-year money” during that five-year allocation period.

The phony numbers are referred to inside the Pentagon as “plugs”, as in plugging a hole, said current and former officials. “Nippering”, a reference to a sharp-nosed tool used to snip off bits of wire or metal, is Pentagon slang for shifting money from its congressionally authorized purpose to a different purpose. Such nippering can be repeated multiple times “until the funds become virtually untraceable”, says one Pentagon-budgeting veteran who insisted on anonymity in order to keep his job as a lobbyist at the Pentagon.

The plugs can be staggering in size. In fiscal year 2015, for example, Congress appropriated $122 billion for the US Army. Yet DoD financial records for the Army’s 2015 budget included a whopping $6.5 trillion (yes, trillion) in plugs. Most of these plugs “lack[ed] supporting documentation”, in the bland phrasing of the department’s internal watchdog, the Office of Inspector General. In other words, there were no ledger entries or receipts to back up how that $6.5 trillion supposedly was spent. Indeed, more than 16,000 records that might reveal either the source or the destination of some of that $6.5 trillion had been “removed”, the inspector general’s office reported.

In this way, the DoD propels US military spending higher year after year, even when the country is not fighting any major wars, says Franklin “Chuck” Spinney, a former Pentagon whistle-blower. Spinney’s revelations to Congress and the news media about wildly inflated Pentagon spending helped spark public outrage in the 1980s. “They’re making up the numbers and then just asking for more money each year”, Spinney told The Nation. The funds the Pentagon has been amassing over the years through its bogus bookkeeping maneuvers “could easily be as much as $100 billion”, Spinney estimated.

Indeed, Congress appropriated a record amount – $716 billion – for the DoD in the current fiscal year of 2019. That was up $24 billion from fiscal year 2018’s $692 billion, which itself was up $6 billion from fiscal year 2017’s $686 billion. Such largesse is what drives US military spending higher than the next ten highest-spending countries combined, added Spinney. Meanwhile, the closest thing to a full-scale war the United States is currently fighting is in Afghanistan, where approximately 15,000 US troops are deployed – only 2.8 percent as many as were in Vietnam at the height of that war.

The DoD’s accounting practices appear to be an intentional effort to avoid accountability, says Armstrong. “A lot of the plugs – not all, but a substantial portion – are used to force general-ledger receipts to agree with the general budget reports, so what’s in the budget reports is basically left up to people’s imagination”, Armstrong says, adding, “Did the DoD improperly spend funds from one appropriated purpose on another? Who can tell?”

“The United States government collects trillions of dollars each year for the purpose of funding essential functions, including national-security efforts at the Defense Department”, Senator Grassley told The Nation. “When unelected bureaucrats misuse, mismanage, and misallocate taxpayer funds, it not only takes resources away from vital government functions, it weakens citizens’ faith and trust in their government”.

This Pentagon accounting fraud is deja vu all over again for Spinney. Back in the 1980s, he and a handful of other reform-minded colleagues exposed how the DoD used a similar accounting trick to inflate Pentagon spending – and to accumulate money for “off-the-books” programs. “DoD routinely over-estimated inflation rates for weapons systems”, Spinney recalled. When actual inflation turned out to be lower than the estimates, they did not return the excess funds to the Treasury, as required by law, but slipped them into something called a ‘Merged Surplus Account’ “, he said.

“In that way, the Pentagon was able to build up a slush fund of almost $50 billion” (about $120 billion in today’s money), Spinney added. He believes that similar tricks are being used today to fund secret programs, possibly including US Special Forces activity in Niger. That program appears to have been undertaken without Congress’s knowledge of its true nature, which only came to light when a Special Forces unit was ambushed there last year, resulting in the deaths of four US soldiers.

“Because of the plugs, there is no auditable way to track Pentagon funding and spending”, explains Asif Khan of the Government Accountability Office, the Congress’s watchdog on the federal bureaucracy. “It’s crucial in auditing to have a reliable financial record for prior years in order to audit the books for a current year”, notes Khan, the head of the National Security Asset Management unit at GAO. Plugs and other irregularities help explain why the Pentagon has long been at or near the top of the GAO’s list of “high risk” agencies prone to significant fraud, waste, and abuse, he adds.

The Nation submitted detailed written questions and requested interviews with senior officials in the Defense Department before publishing this article. Only public-affairs staff would speak on the record. In an e-mailed response, Christopher Sherwood of the DoD’s Public Affairs office denied any accounting impropriety. Any transfer of funds between one budgetary account and another “requires a reprogramming action” by Congress, Sherwood wrote, adding that any such transfers amounting to more than one percent of the official DoD budget would require approval by “all four defense congressional committees”.

The scale and workings of the Pentagon’s accounting fraud began to be ferreted out last year by a dogged research team led by Mark Skidmore, a professor of economics specializing in state and local government finance at Michigan State University. Skidmore and two graduate students spent months poring over DoD financial statement reviews done by the department’s Office of Inspector General (OIG). Digging deep into the OIG’s report on the Army’s 2015 financial statement, the researchers found some peculiar information. Appendix C, page 27, reported that Congress had appropriated $122 billion for the US Army that year. But the appendix also seems to report that the Army had received a cash deposit from the US Treasury of $794.8 billion. That sum was more than six times larger than Congress had appropriated – indeed, it was larger than the entire Pentagon budget for the year. The same appendix showed that the Army had accounts payable (accounting lingo for bills due) totaling $929.3 billion.

“I wondered how you could possibly get those kinds of adjustments out of a $122 billion budget”, Skidmore recalled.

I thought, initially, “This is absurd!” And yet all the [Office of Inspector General] seemed to do was say, “Here are these plugs”. Then, nothing. Even though this kind of thing should be a red flag, it just died. So we decided to look further into it.

To make sure that fiscal year 2015 was not an anomaly, Skidmore and his graduate students expanded their inquiry, examining OIG reports on Pentagon financial records stretching back to 1998. Time and again, they found that the amounts of money reported as having flowed into and out of the Defense Department were gargantuan, often dwarfing the amounts Congress had appropriated: $1.7 trillion in 1998, $2.3 trillion in 1999, $1.1 trillion in 2000, $1.1 trillion in 2007, $875 billion in 2010, and $1.7 trillion in 2012, plus amounts in the hundreds of billions in other years.

In all, at least a mind-boggling $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be traced, documented, or explained, concluded Skidmore. To convey the vastness of that sum, $21 trillion is roughly five times more than the entire federal government spends in a year. It is greater than the US Gross National Product, the world’s largest at an estimated $18.8 trillion. And that $21 trillion includes only plugs that were disclosed in reports by the Office of Inspector General, which does not review all of the Pentagon’s spending.

To be clear, Skidmore, in a report coauthored with Catherine Austin Fitts, a former assistant secretary of the Department of Housing and Urban Development who complained about similar plugs in HUD financial statements, does not contend that all of this $21 trillion was secret or misused funding. And indeed, the plugs are found on both the positive and the negative sides of the ledger, thus potentially netting each other out. But the Pentagon’s bookkeeping is so obtuse, Skidmore and Fitts added, that it is impossible to trace the actual sources and destinations of the $21 trillion. The disappearance of thousands of records adds further uncertainty. The upshot is that no one can know for sure how much of that $21 trillion was, or was not, being spent legitimately.

That may even apply to the Pentagon’s senior leadership. A good example of this was Donald Rumsfeld, the notorious micromanaging secretary of defense during the Bush/Cheney administration. On September 10 2001, Rumsfeld called a dramatic press conference at the Pentagon to make a startling announcement. Referring to the huge military budget that was his official responsibility, he said, “According to some estimates we cannot track $2.3 trillion in transactions”. This shocking news that an amount more than five times as large as the Pentagon’s Fiscal Year 2001 budget of an estimated $313 billion was lost or even just “untrackable” was – at least for one 24-hour news cycle – a big national story, as was Secretary Rumsfeld’s comment that America’s adversary was not China or Russia, but rather was “closer to home: It’s the Pentagon bureaucracy.” Equally stunning was Rumsfeld’s warning that the tracking down of those missing transactions “could be … a matter of life and death”. No Pentagon leader had ever before said such a thing, nor has anyone done so since then. But Rumsfeld’s expose died quickly as, the following morning on September 11, four hijacked commercial jet planes plowed full speed into the two World Trade Center towers, the Pentagon, and a field in Pennsylvania. Since that time, there has been no follow-up and no effort made to find the missing money, either.

Recalling his decades inside the Pentagon, Spinney emphasized that the slippery bookkeeping and resulting fraudulent financial statements are not a result of lazy DoD accountants. “You can’t look at this as an aberration”, he said. “It’s business as usual. The goal is to paralyze Congress.”

That has certainly been the effect. As one congressional staffer with long experience investigating Pentagon budgets, speaking on background because of the need to continue working with DoD officials, told The Nation,

We don’t know how the Pentagon’s money is being spent. We know what the total appropriated funding is for each year, but we don’t know how much of that funding gets spent on the intended programs, what things actually cost, whether payments are going to the proper accounts. If this kind of stuff were happening in the private sector, people would be fired and prosecuted.

DoD officials have long insisted that their accounting and financial practices are proper. For example, the Office of Inspector General has attempted to explain away the absurdly huge plugs in DoD’s financial statements as being a common, widely accepted accounting practice in the private sector.

When this reporter asked Bridget Serchak, at the time a press spokesperson for the inspector general’s office, about the Army’s $6.5 trillion in plugs for fiscal year 2015, she replied,

Adjustments are made to the Army General Fund financial statement data … for various reasons such as correcting errors, reclassifying amounts. and reconciling balances between systems … For example, there was a net unsupported adjustment of $99.8 billion made to the $0.2 billion balance reported for Accounts Receivable.

There is a grain of truth in Serchak’s explanation, but only a grain.

As an expert in government budgeting, Skidmore confirmed that it is accepted practice to insert adjustments into budget reports to make both sides of a ledger agree. Such adjustments can be deployed in cases where receipts have been lost – in a fire, for example – or where funds were incorrectly classified as belonging to one division within a company rather than another. “But those kinds of adjustments should be the exception, not the rule, and should amount to only a small percentage of the overall budget”, Skidmore said.

For its part, the inspector general’s office has blamed the fake numbers found in many DoD financial statements on the Defense Finance and Accounting Service (DFAS), a huge DoD accounting operation based in Indianapolis, Indiana. In review after review, the inspector general’s office has charged that DFAS has been making up “unsupported” figures to plug into DoD’s financial statements, inventing ledger entries to back up those invented numbers, and sometimes even “removing” transaction records that could document such entries. Nevertheless, the inspector general has never advocated punitive steps against DFAS officials – a failure that suggests DoD higher-ups tacitly approve of the deceptions.

Skidmore repeatedly requested explanations for these bookkeeping practices, he says, but the Pentagon response was stonewalling and concealment. Even the inspector general’s office, whose publicly available reports had been criticizing these practices for years, refused to answer the professor’s questions. Instead, that office began removing archived reports from its website. (Skidmore and his grad students, anticipating that possibility, had already downloaded the documents, which were eventually were restored to public access under different URLs.)

Nation inquiries have met with similar resistance. Case in point: A recent DoD OIG report on a US Navy financial statement for fiscal year 2017. Although OIG audit reports in previous years were always made available online without restriction or censorship, this particular report suddenly appeared in heavily redacted form – not just the numbers it contained, but even its title! Only bureaucratic sloppiness enabled one to see that the report concerned Navy finances: Censors missed some of the references to the Navy in the body of the report, as shown in the passages reproduced here.

A request to the Office of Inspector General to have the document uncensored was met with the response: “It was the Navy’s decision to censor it, and we can’t do anything about that”. At The Nation’s request, Senator Grassley’s office also asked the OIG to uncensor the report. Again, the OIG refused. A Freedom Of Information Act request by The Nation to obtain the uncensored document awaits a response.

The GAO’s Khan was not surprised by the failure of this year’s independent audit of the Pentagon. Success, he points out, would have required “a good-faith effort from DoD officials, but to date that has not been forthcoming”. He added,

As a result of partial audits that were done in 2016, the Army, Navy, Air Force, and Marines have over 1,000 findings from auditors about things requiring remediation. The partial audits of the 2017 budget were pretty much a repeat. So far, hardly anything has been fixed.

Let that sink in for a moment: As things stand, no one knows for sure how the biggest single-line item in the US federal budget is actually being spent. What’s more, Congress as a whole has shown little interest in investigating this epic scandal. The absurdly huge plugs never even get asked about at Armed Services and Budget Committee hearings.

One interested party has taken action – but it is action that’s likely to perpetuate the fraud. The normally obscure Federal Accounting Standards Advisory Board sets the accounting standards for all federal agencies. Earlier this year, the board proposed a new guideline saying that agencies that operate classified programs should be permitted to falsify figures in financial statements and shift the accounting of funds to conceal the agency’s classified operations. (No government agency operates more classified programs than the Department of Defense, which includes the National Security Agency.) The new guideline became effective on October 4, just in time for this year’s end-of-year financial statements.

So here’s the situation: We have a Pentagon budget that a former DoD internal-audit supervisor, Jack Armstrong, bluntly labels “garbage.” We have a Congress unable to evaluate each new fiscal year’s proposed Pentagon budget because it cannot know how much money was actually spent during prior years. And we have a Department of Defense that gives only lip service to fixing any of this. Why should it? The status quo has been generating ever-higher DoD budgets for decades, not to mention bigger profits for Boeing, Lockheed, and other military contractors.

The losers in this situation are everyone else. The Pentagon’s accounting fraud diverts many billions of dollars that could be devoted to other national needs: health care, education, job creation, climate action, infrastructure modernization, and more. Indeed, the Pentagon’s accounting fraud amounts to theft on a grand scale – theft not only from America’s taxpayers but also from the nation’s well-being and its future.

As President Dwight D Eisenhower, who retired from the military as a five-star general after leading Allied forces to victory in World War Two, said in a 1953 speech, “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed”. What would Eisenhower say today about a Pentagon that deliberately misleads the people’s representatives in Congress in order to grab more money for itself while hunger, want, climate breakdown, and other ills increasingly afflict the nation?

Correction: An earlier version of this article included a mention of $6.5 billion in plugs in 2015. In fact, as cited elsewhere in the story, the correct figure is $6.5 trillion. The article also cited an inaccurate figure for the percentage of federal tax dollars received by the Pentagon. In fact, the Pentagon receives more than half of every dollar of federal discretionary spending, not two out of every three federal tax dollars. The text has been corrected.

https://www.thenation.com/article/pentagon-audit-budget-fraud/